I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

I work for ThoughtWorks, the global leader in software delivery and consulting.

Thursday, December 29, 2011

Investments in infrastructure, whether public transport or IT applications, tend to lack hard numbers because they are a means to an end and not an end in themselves. We have transport to enable people to travel to work and allow goods to reach markets. Captive IT departments produce systems that enable us to conduct business faster and more efficiently and at larger scale.

Any given IT investment will be expected to yield a hodge-podge of benefits as diverse as revenue increases, efficiency gains and improved customer satisfaction. It is appealing to combine these into a single measure of business value because it makes it easier to compare costs with benefits. It is also appealing to sum up business value across all projects as a way of expressing the impact that IT has on the business. In practice, though, business value makes for poor coin of the realm because it suffers two serious deficiencies.

First, it attempts to aggregate benefits that have fundamentally different economics. Not every dollar of business value is the same: a dollar of revenue has much different value to a business than a dollar of cash flow, or a dollar of profit, or a dollar's worth of increased productivity, or a dollar's worth of improved customer service. Rolling these up into a single metric of value is akin to aggregating apples and corn syrup into "sweet foodstuffs". It does less to upgrade the perception of the intangible benefits from an IT solution than it casts doubt over the more tangible ones.

Second, business value is prone to runaway inflation. Suppose we create a shoddy but effective solution to solve an urgent business problem, and sometime later we take on the important task of replacing that shoddy solution with a more robust one. How much business value do we get from the re-implementation? Since we cannot accrue the same business benefit multiple times, about all we get is greater reliability and lower maintenance costs. These have merit in their own right, but the benefits may not exceed the costs of the re-development. This encourages people to play loose and free with what "business value" means to justify an investment. That might mean taking credit for solving unintended process inefficiencies of the shoddy solution, or increasing the alleged risk that the shoddy solution fails in spectacular fashion. This makes business value a weak currency: because it is so easily conjured, it is easily inflatable, and it quickly loses value.

Some firms go as far as to track their annual business value delivered. I once worked with a firm that reported a total business value delivered that was greater than their market capitalization. Since nobody working there felt the firm was undervalued by investors, everybody dismissed the business value metric for what it was: an imaginary measure of imaginary benefits.

We should always base IT decisions in context of value to the business, but wanton overstatement undermines IT's perceived business value. If we delineate value by its underlying economics, we make a more compelling case for investing in the business through IT at all.